Shipping Series 2019/2029: where do we stand at the halfway point?

In 2019, we carried out a prospective exercise on the possible evolution of containerised shipping for the decade 2019-2029. We propose a mid-term review of these scenarios drawn up before the Covid-19 pandemic.

In August 2019, we wanted to take a step back from short-term developments by publishing a series of articles on the scenarios for the evolution of containerised shipping lines over the decade to come. If we disregard the pandemic, which we had not predicted, we found, surprisingly, the same major issues that are still being raised today, and even more acutely so than at the time of writing the articles.

Halfway through the decade, we wanted to review the elements of this series of articles to try to predict the possible evolution of containerised maritime transport in the next 5 years.

1/ All-Conquering China: a persistent but better managed risk

Five years ago, a certain naivety still prevailed in France and in Europe in general in the face of China's hegemonic aims, including in a vast majority of political and business circles. It is clear that this period is now over.

Thanks to the Covid-19 pandemic, the Western world has clearly perceived its vulnerability. This explosion has reinforced the United States' posture of hostility, which had manifested itself as early as 2018 in a violent trade war launched under the leadership of the Trump administration. The Chinese origin of the pandemic has added a little more fuel to the fire.

In a less brutal Europe, which does not speak with one voice vis-à-vis China, the response has taken longer. There has been a lot of talk about the need to diversify supply chains, but the concrete results of this that are much less tangible in the European Union than in the United States. It took a second major shock for Europe to really wake up to this: the war in Ukraine. The European Union has once again been made aware of its economic and political vulnerability to a dominant supplier, and one that supports Russia.

Today, and for the next 5 years, the relationship is moving towards more pragmatism and is being built in a more settled way thanks to a better mutual understanding. A lot of tension remains or is appearing. But the need to seek consensus seems unavoidable.

Points of convergence

• The interconnection of economies: Whether we desire it or deplore it, the European and Chinese economies are interconnected. The pandemic has led to a brutal realisation of our strategic dependence on almost everything we consume. As for China, it came to the realisation that its domestic market would not necessarily provide it with the expected growth drivers. To guarantee economic prosperity, there is therefore a mutual dependence of which everyone is now well aware, even if they are trying to contain it. The decoupling strategy of the United States vis-à-vis China reinforces, even a little more than before, the importance of the European market for China.
• Access to strategic products : the European Union depends for 90% on China for the import of rare earth elements, which include metals mainly used in the electronics, renewable energy, aerospace, or defence industries. At the same time, China is not self-sufficient in certain essential products such as dairy products, of which it is the world's largest importer. In particular, France exports infant milk. Moreover, although these are obviously not strategic products, China has an appetite for luxury products, and also wines and spirits.
• Co-operation: in containerised shipping, for example, the CMA CGM COSCO alliance was renewed for 5 years (on top of the $3 billion in new ship orders from Chinese shipyards from CMA CGM). Mention should also be made of technical and commercial agreements in the aviation, space, and rail sectors.

Areas of Tension

• Lopsidedness in the trade balance: China has so far remained deaf to European wishes to reduce the trade imbalance.
• Competition rules: In recent months, the European Commission has launched investigations into subsidies for certain Chinese products, such as electric vehicles and wind turbines. And on July 5, 2024, the first sanctions fell, with the introduction of provisional countervailing duties on imports of battery electric vehicles from China. Even before this decision, China made it known that it would retaliate, targeting in particular European pork exports to it.
• Foreign policy: In addition to China supporting Russia, the European Union is concerned about its policy in the South China Sea, but also about the rise of China's presence in Africa and in particular its control over minerals and rare earth elements.
• Interference in Europe and France: cyber-attacks, data control, and operations against opponents on European soil are all matters that are poisoning relations.
• Human rights: even while Westerners have shown a certain pragmatism in this area in the face of economic imperatives, the adoption of laws in the United States and the EU on the prohibition of goods derived from forced labour marks a new stage.

Five years after our diagnosis, China therefore appears to be just as dominant, but the other major world economic powers have now taken stock of the situation. Naivety has given way to a real political will to rebalance, tempered by economic realities. Gone are the days when the port of Piraeus passed into the hands of Cosco in a climate of general indifference. As of now, investments in critical infrastructure are closely scrutinised, and sovereignty has replaced globalisation in the elements of language in economic circles, even the most liberal ones.

2/ Economic sovereignty and the rise of nationalism

This concept was still relatively theoretical 5 years ago. Economic circles were still betting massively on the so-called "happy" globalisation, blind to the vulnerability that this system had generated but also deaf to the expressions of rejection emanating from the system's losers in Western populations. Here too, the shock due to the pandemic is beginning to take its toll. The political shock of the 2024 European elections, which were marked by a strong breakthrough of the far right in the founding countries of the EU, could further strengthen awareness.

There is no question of imagining total independence, as this is clearly wishful thinking. But the need to quickly become less economically dependent has become apparent in both Europe and the United States. The about-face in French nuclear policy is a good example. The European Union too has embarked on an in-depth examination of its strategic areas of interest.

In the containerised shipping sector, it is necessary to recognise the implementation of a much more elaborate policy. This is particularly the case in France, with a real vision of the strategic role of this sector. A powerful and mobilisable maritime structure is a marker of power and also ‘soft power’ which makes it possible to accompany a country's global influence and therefore to weigh in the concert of Nations. CMA CGM maintains a constant dialogue at the highest level of the state, and each has come to the aid of the other when the need has arisen. France is not the only country with a flagship shipping line. If we include MSC, Maersk and Hapag Lloyd, Europe presents four companies in a global Top 5 where the only non-European operator is none other than the Chinese company Cosco. In this area, Europe is a real step ahead of the United States, which is now realising that a renaissance of its merchant navy policy will cost it very dearly after decades of voluntary under-investment. 

3/ The importance of e-commerce players in the evolution of the market

Five years ago, our third scenario envisaged a market-driven evolution, and in particular by the rise of Big Tech, in a calm geopolitical context. We now know that on this second point, we are facing a hopeless scenario. On the other hand, this does not detract from the ambitions of new players coming from e-commerce. Two companies were mainly leading the dance at the time: Amazon and Alibaba. These e-commerce platforms quickly understood that controlling the supply chain was a key element of success. They created dedicated structures, and did not hesitate to charter their own vessels when periods of tension on the access to capacity appeared.

Today, new Chinese platforms have grown to a phenomenal size in just a few months by focusing their development on B2C: namely Temu and Shein. Here again, in addition to the determining factor of selling at very low prices, logistical operations are crucial. Both platforms make extensive use of air freight, which is both an economic aberration given the selling price of the products and an ecological aberration that is unsustainable over time. However, the strategy of conquering market share is working, dramatically illustrating the gap between rhetoric and action, whether it's stopping the ever-conquering China or reducing CO2 emissions. 

However, the greening of logistics chains will be one of the major challenges of the next 5 years, in the face of the climate emergency that is forcing itself ever more brutally into our daily lives. Sooner or later, the "citizen-consumer" will have to make more rational choices. This would mean a shift towards shorter circuits and towards a form of sobriety at the expense of hyper consumption. Europe plays a leading role in this area. The United States, under the Biden administration, has also massively accelerated investments in the energy transition. But the outcome of the US elections in November 2024 will be decisive for the continuation or not of this strategy. Finally, for the Indo-Pacific zone, this is not a priority at this stage. It will therefore continue to recover most of its growth in the short term via a mostly coal-dependent production apparatus. 

4/ The transformations of containerised maritime transport

In conclusion, what can we learn from the impact of these different factors on containerised maritime transport over the last 5 years and for the next 5 years?

• Consolidation

The continuation of the consolidation trend announced in 2019 has indeed taken place. However, the pandemic has changed the contours somewhat. By allowing shipping companies to rebuild their cash flow in record time and in unexpected proportions, due to the surge in freight rates, this episode allowed them to become drivers of consolidation instead of simply accepting the trend. Even MSC, one of the big winners over this period, is also moving towards external growth, even though it had taken care to prioritise organic growth.

• Yield management

Thirty years ago, when I started my career as a young manager of a Latin American line in Marseille, it was unthinkable, except for unforeseen events of course, that a ship would not leave on time, on the given day, with a weekly rhythm that was almost always respected. It was about reputation, and almost a matter of honour for the crews. Today, it is not uncommon for a ship to be cancelled at the last minute. We have embarked on a more financial approach to the activity, which has been accentuated by the crises of recent years. It consists of considering that it is better to assume the cost of the "non service", rather than a service carried out at a loss. This is a radical change of mindset in regular shipping lines, fostered by the deployment of very powerful digital yield management tools.

It seems unthinkable today to go back. In 2019, we talked about the end of structurally cheap shipping of freight. Geopolitical shocks today add credit to this hypothesis based initially on the analysis of changes in supply and demand.